Wal-Mart, Bharti in JV to open chain of stores in India

15 August, 2007:

Wal-Mart, the world’s largest retailer, has announced its entry into India through a cash-and-carry joint venture with Bharti Enterprises, the industrial group that owns India’s leading mobile phone network.

The United States-based business group has signed an agreement to open a chain of wholesale stores serving small shopkeepers, fruit and vegetable resellers, restaurants and other business owners, and retail outlets owned and operated by Bharti.

Up to 15 stores – each with a space between 50,000 square feet and 100,000 square feet, selling groceries, clothing, stationery, and consumer durable goods – have been planned initially, with the first one opening either late in 2008 or in early 2009.

The 50-50 wholesale joint venture, to be branded Bharti Wal-Mart, will employ about 5,000 people over seven years. No financial details have yet been disclosed, but Bharti Enterprises had earlier said that it would spend up to $2.5 billion (£1.2 billion).

Both companies said they would invest in an “efficient supply chain,” linking farmers with retailers in a country where poor logistics causes more than a third of all fresh produce to be wasted before it can be sold.

Mike Duke, Wal-Mart’s vice-chairman, said the company “would help drive efficiencies and work towards the betterment of India’s farmers, small manufacturers and retailers, in line with our global vision of saving people money so they can live better.”

The deal allows Bharti Enterprises, a novice in the retail sector, to use Wal-Mart’s expertise in supply-chain management and logistics in its own supermarket chain. In return, Wal-Mart gains entry to a $300-billion retail market that is predicted to nearly triple in size by 2015 as India’s rapidly-growing middle classes are adopting Western shopping habits.

Indian law prohibits multi-brand foreign retailers from investing directly in the retail sector, so they have to sign franchise deals with local partners. Bharti had also been in talks with Tesco and Carrefour.

Foreign investment in retail is a politically sensitive issue in India, where only 3% of the market is accounted for by the ‘organised’ sector. Most of the trade is still handled by an estimated 12 million family-run stores and countless street hawkers.

The Government of India has not objected to Bharti’s deal with Wal-Mart, but it is likely to take a closer look at the deal in the light of the anticipated resistance by a large section of the public.

Opponents of foreign investment in retail argue that many traders will be put out of business by predatory pricing and that the livelihoods of 40 million people dependent on small-scale retailing will be endangered.